Chapter_11

Chapter_11 - Recession, Depression, Expansion and Booms:...

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Click to edit Master subtitle style Recession, Depression, Expansion and Booms: The Business Cycle Readings: Zagorsky Book Chapter 11.
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Overview The economy constantly oscillates (goes up and down). These oscillations are called business cycles and are natural fluctuations in the overall economy. While individuals can not do anything about them, it is important to understand the business cycle since it directly affects most people and almost all businesses.
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Why Do You Care? How easy or hard it is to get a job is based on both your individual skills and general economic conditions. During recessions and just after recessions it is hard to find work.
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Why Do You Care? How easy or hard it is to get a loan is based both on your individual credit situation and general economic conditions. During recessions and just after recessions it is hard to get loans.
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Why Does Society Care? For people running a company that company’s success or failure is dependent both the manager’s skills and general economic conditions. Sometimes even the best managers can not save a business that is being effected by a economic recession. Sometimes even the worst managers make a lot of money during an economic expansion.
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Over the Long Run All Capitalis Graph of USA Real Gross Domestic Product (Billions of 2000 $) Since 1929 U.S. real economy grew about 13 fold. In just last 10 years we have 30% more output. $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
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Real Annual GDP % Change in OECD Countries 1970 - Present Country Increase Country Increase Denmark 1.9 Finland 2.6 Sweden 2.1 Spain 2.7 Belgium 2.1 Greece 2.7 Germany 2.1 Canada 2.8 Italy 2.1 Australia 3.0 United Kin 2.1 Norway 3.1 Netherland 2.3 Portugal 3.1 France 2.3 Luxembourg 4.6 Austria 2.5 Korea 8.8
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However, Over the Short Run Detrended USA GDP 0 200 400 600 800 1000 1200 1400 1600 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994
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4 Key Business Cycle Definitions A Recession is a period of declining real GDP, falling incomes, and rising unemployment. A Depression is a severe recession. Incomes fall dramatically, huge numbers of people are unemployed. GDP plummets. An Expansion is a period of rising real GDP, increasing average incomes and falling unemployment. A Boom is a period of very rapid expansion. Incomes soar, almost no one is unemployed and GDP rapidly expands.
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People lose their Jobs Homes Skills Savings Fraud is uncovered Weak businesses eliminated New businesses created. Recessions are like getting sick: Getting sick is never fun, never happens at a good time and everyone wants to get better faster than it actually takes. Getting sick is actually very useful because it builds immunity and prevents weak
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This note was uploaded on 04/17/2011 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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Chapter_11 - Recession, Depression, Expansion and Booms:...

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